Backing Big Brother: Chinese facial recognition firms appeal to funds

Companies shrug off concerns about privacy rights

HONG KONG: Buoyed by China’s plans to build a ubiquitous CCTV surveillance network, Chinese and some foreign investors are pouring money into start-up technology firms that specialize in facial recognition software.

At stake for firms such as SenseTime Group, Face++ and DeepGlint, is a multi-billion dollar global public and private market for facial recognition technology that can quickly identify individuals by measuring major elements of their faces, such as the distance between the eyes and the curve of the cheekbones. With the use of artificial intelligence (AI) the technology can recognise and track those wanted by the authorities by seeking a match from a database of photographs.

In the commercial world it can be used for security at homes, workplaces and ATM machines, and as a part of payments systems at stores and restaurants. According to estimates from IHS Markit Ltd, video surveillance - including the equipment and video management software - was a $6.4 billion market in China in 2016, with 176 million surveillance cameras already installed by the authorities or private companies.



That market, the largest in the world, is set for a compound annual growth rate of 12.4 per cent through 2021, according to IHS. By comparison, the US market was estimated to be worth only $2.9 billion and growing at just 0.7 per cent a year.

In China, though, the supercharged growth has added to concerns about controls on dissidents or activists by the government of President Xi Jinping, especially when combined with the potential for the Chinese authorities to track phones being increasingly used for electronic payments and their stepped up monitoring of Internet traffic. That hasn’t appeared to deter investors, who include leading US venture capital firms such as the China arm of Sequoia Capital, which is one of the best-known Silicon Valley venture capital firms.

Hong Kong-based SenseTime Group, which produces deep-learning based software for facial recognition, autonomous driving and video analyzing, said earlier this month it had “attracted lots of interest” in its latest financing round without elaborating. People familiar with its plans said the firm intends to raise about $500 million.

At the same time, SenseTime, which lists various police departments across China as major clients, has joined forces with its backer China’s CDH Investments to raise about $450 million to invest in other firms working on artificial intelligence technologies, said two sources with knowledge of the matter. And China’s biggest facial recognition firm Megvii, more commonly known as Face ++, earlier this month announced it has raised $460 million in its latest capital raising, including pulling in money from China's national venture capital fund.

With the funding, Face++ plans to expand its business from software to hardware by developing more products with built-in AI, such as smart surveillance cameras that can capture faces better and faster, said Xie Yinan, Face++'s marketing and public relations director.

"We want to enhance these 'eyes of the city' and make them intelligent," Xie told Reuters. "So that 'footage of the city' become 'data about the city'," he said.

Xie said that Face++, whose technology is behind Chinese company Alipay's "scan-your-face-to-pay" function, has already helped the police catch more than 3,000 fugitives. "It's just like in the films. The police no longer need to manually look for someone from thousands in the camera. The video network automatically detects and alerts them to situations so that greatly enhances their efficiency," Xie said.

Singapore proposal

Face++, which was founded in 2011, does not release specific revenue figures but Xie said it has been growing at about 400 per cent annually and the company is expected to break even this year. It's also targeting an initial public offering, although it has no time frame, he said.

SenseTime said its video surveillance technology is used by 40 local government clients. Its photography enhancement technology is also used by almost all of China's major smartphone manufacturers including Huawei Technologies, Oppo, Vivo and Xiaomi.

SenseTime is seeking to expand overseas. It's considering setting up an ASEAN headquarters in Singapore, after Singapore’s Prime Minister Lee Hsien-loong recently visited the company in Beijing, Shang told Reuters.

"We are confident of recording $100 million in revenue this year," he said, adding that would make it No.1 in China. He said the company expects its overseas revenue to grew to $150 to $200 million in three to five years. SenseTime and Face++ are far from alone.



Smaller rival Yitu Technology, which lists more than a dozen provincial or municipal police departments across China as major clients, raised $380 million from investors in May, including Sequoia China. DeepGlint, another Sequoia-backed AI company that has developed an intelligent surveillance camera that can capture faces as far away as 50 metres, told Reuters it derives almost all of its revenue from government contracts.

Sequoia did not respond to Reuters' requests for comment on whether it has any concern that technology it is investing in may infringe individual privacy. Both Shang and Xie shrugged off criticism that their companies' technology may be used to infringe on individuals' privacy.

"We are only technology providers, we are neutral," Xie said. "If you go back to the time before there is mobile, before there is the Internet, then of course you had better privacy. But times have to advance with technology," he said.